cashing in pension. . or not

SSTEPHANIE

ooooooooook as the Librarian would say:eek:

SSTEPHANIE

I am reading and learning from all of your comments, ........ quite enjoying it actually. again. thank you it is all helping

jamesd

EdInvestor wrote: »

As far as I can see, Sippdeal have no minimum for drawdown.They will charge £150 to set it up.That will come off the 2k, so Stephanie will get 25% of £1,850 in tax free cash and the rest will be put into the drawdown.

You might want to check Sippdeal's charges that she would pay if doing as you suggest, all before VAT:

£50 to transfer in. Plus whatever the current company charges for a transfer out.
£150 to set up the unsecured pension (drawdown account).
£75 for the first GAD review to calculate the income drawing limits. Same again every five years.
£10 per pension payment instalment (I'm assuming a lump sum charges this once, the cost for a lump sum might be higher).

That's £285 in fees plus £42.75 VAT for a total deduction of £327.75.

Now she could take 25% of the £1672.25 she'll have left after all that, getting her £418 to reduce her overdraft with and leaving £1254 in the pension pot.

And you're suggesting this as a good idea rather than a waste of money that will cost her far more than she gains in saved overdraft interest on the £418 from the pension? Remember, that's £418 off the overdraft and £327.75 in fees to get it.

Now, lets consider that £1254 left in the pension pot and the £75 GAD fee to pay once every five years. Just to fund that takes 1.2% growth each year for the five years between GAD valuations.

Still think it's a good idea when it's costing her 16% up front and 1.2% a year on top of the charges for any funds she uses? It's the sort of thing that you'd describe as rip-off charging normally.

There's absolutely nothing wrong with drawdown in the right situation with a fund size that makes it sensible. This just isn't one of those cases.

Remember the purpose here: saving overdraft interest charges. There are far better ways to do that, ways that don't cost anything like as much money.

EdInvestor

jamesd wrote: »

You might want to check Sippdeal's charges that she would pay if doing as you suggest, all before VAT:

£50 to transfer in.

Apologies, I failed to mention this as it has recently been the subject of a free special offer.

£150 to set up the unsecured pension (drawdown account).

Already mentioned.

£75 for the first GAD review to calculate the income drawing limits. Same again every five years.

I am pretty sure this is included in the setup charge at the start.So this is only payable after 5 years.

£10 per pension payment instalment (I'm assuming a lump sum charges this once, the cost for a lump sum might be higher).

Lump sum is included in setup, no income taken therefore no charge.total pension

So that would be £230 (incl VAT) deducted leaving 1770, for a tax free cash lump sum of £442.50.

I thought the aim was to reduce debt, haven't seen anything about overdraft interest

THat leaves £1327.50 in the pension pot and we'd have to allow say £30 in transaction charges to invest the money in say 3 funds/ITs/ETFs.

Now, lets consider that the £75 GAD fee to pay once every five years. Just to fund that takes 1.2% growth each year for the five years between GAD valuations.

That amount can be saved simply by choosing cheaper investment options.

The drawdown option needs to be compared with the lump sum and annuity option currently being offered.Obviously it's a laughably miniscule fund and the smaller the fund, the bigger the impact made by flat-rate charges.

But it would still be interesting to compare the position if the OP took the lump sum and the level annuity and then invested the (taxed) annuity income, say in a S&S ISA (in the same funds if you like) over the same period.

I still bet you the drawdown would outperform.

jamesd

The purpose of reducing debt is to reduce the interest paid on the debt so you can get rid of it faster. What you're suggesting is a really expensive way to do that. The overdraft part of her debts was mentioned in the thread referred to earlier.

What investment option do you suggest that will save her 1.2% a year in annual costs so she breaks even after the GAD charges? Remember she has an insurance company plan where she's probably paying 1% in fees, so you're effectively suggesting that she'll be able to get a minus 0.2% or better annual charge. Since that's a charge it's unlikely that they would pay her money instead of charging her.

EdInvestor

Perhaps the OP could just recap on what she is trying to achieve by redeploying this pension so as to avoid debate which may be at cross purposes.

jem16

She wants to use it to clear her overdraft and debts.

http://forums.moneysavingexpert.com/showthread.html?t=2000933

and

http://forums.moneysavingexpert.com/showthread.html?t=2005669&highlight=

SSTEPHANIE

You've got it Jem, :T basically to clear the interest and debt and o/d I am paying; I see taking the pension as a gamble 1)as the £500 would make a difference to interest I am paying AND receiving the extra few quid they would pay as my pension would also ease this. OR the other gamble 2) is that i can scrape through this, AND live another ten years to enjoy slightly more of a pension ? hmmm now I've put it like that I think taking the pension out now probably makes more sense ? .... somehow my pension and what I could do with it became more of an issue, I guess if it was a BIG pension it WOULD make a lot of difference ......... I have learnt so much though, ..... Id still like to hear other comments about the small pension they will pay me because hopefully not too long in the future I will have sorted out more of my debts and will be able to start saving again, although ISA's are looking good for my age group !:D Worry is interest paid on trouble before it is due

SSTEPHANIE

:beer: In the not too distant future when I have got on top of all of this I shall definitely be asking for some help, I think I have actually begun to understand ! :money:

What do you guys think of the "clicking for money" that eagerlearner was talking about, Ive signed up for a few things to see what will happen, Im at home with the computer a lot of the time anyway ?

jamesd

I think that you should go to your local Halifax and sign up for three Reward accounts to get £15 a month from them. You can meet the £1,000 a month required deposit by using a standing order to pay money in from another account, then sending it back to the same account a day later. Repeat with say 100 ten times to hit the £1,000 a month required amount. 15 a month for use of £100 is a very good interest rate.